More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Those looking for guidance on how to proceed regarding the new rule requiring registration of municipal advisors will have a bit longer to wait. Thus far, the only official action taken is the extension of the rule mandating temporary registrations. Instead of expiring on Dec. 31, 2011, now the rule sunsets on Sept. 30 of this year.
At an SEC compliance conference on Jan. 31, Norm Champ, associate director of the SEC’s Office of Compliance Inspections and Examinations (OCIE), which under Dodd-Frank will take on exams of municipal advisors, spoke briefly about the category of municipal advisors. He said, “We continue to meet with MSRB [the Municipal Securities Rulemaking Board] to work on registration of municipal advisors. Around 10% of those who registered temporarily as municipal advisors are affiliated with an advisory firm.”
Also at the conference, Robert Plaze, associate director of the SEC Investment Management division, added that one of the issues is “the scope of the exemptions” under this municipal rule.
July’s notice from MSRB to firms that might be acting as municipal advisors without having registered as such gave notice that the board was taking such actions very seriously. It warned such firms, as previously reported by AdvisorOne, that if they were engaging in municipal advisory activities without registering with either itself or the SEC, they were in violation of the Exchange Act and rules of both agencies.
The MSRB gained expanded regulatory authority over municipal advisors with the advent of Dodd-Frank. Municipal advisors must not only register with the SEC but also with the MSRB, and brokers, dealers and municipal securities dealers that also act as municipal advisors are required to register with both regulators as municipal advisors even if they previously registered with the MSRB as dealers.
However, with the definition of municipal advisors still not finalized by the SEC, firms have no sure guidelines in place. Comments filed during the comment period complained about the situation, and in December 35 members of Congress wrote to Mary Schapiro, chairman of the SEC, to say that the SEC’s “proposed rules go far beyond the statute’s intent and scope” and could drive some advisors out of the municipal market. They further said that the proposed rule went beyond Congress’s intent to regulate previously unregulated entities, and would add “duplicative and unnecessary layers of regulation” on broker-dealers and investment advisors who already face significant regulation.